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How Brands Grow

What Marketers Don't Know

by Byron Sharp
Oxford University Press (USA) © 2010
228 pages

Focus Take-Aways
Leadership & Management • Consumers buy and sales grow in predictable patterns or “laws.”
Strategy
Sales & Marketing • “Small” and “large” brands have about equal market penetration.
Finance
• However, the law of “double jeopardy” says that small brands are vulnerable to two
Human Resources
hazards: lower sales, which can affect all brands, and fewer buyers to make purchases.
IT, Production & Logistics
Career & Self-Development • Customer defection rates remain about the same among competing brands.
Small Business
Economics & Politics • To increase sales and expand a brand, target occasional, light buyers.
Industries
• Acquiring new customers is cheaper and easier than keeping existing customers.
Global Business
Concepts & Trends • The “law of buyer moderation” says light buyers will become heavier and heavy buyers
will become lighter.

• All brands gain and lose customers. Brand instability applies to all brands in all sectors.

• Competing brands share customers. Customers exhibit “divided loyalty” and purchase
from a select group of brands.

• Brand distinctiveness matters more than brand differentiation.

Rating (10 is best)


Overall Applicability Innovation Style

7 6 9 6

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Relevance
What You Will Learn
In this Abstract, you will learn:r1) How to interpret predictable patterns of consumer
behavior, 2) How to increase your customer base, 3) Why the same customers buy
competing brands, and 4) How advertising and price promotions affect customers.

Recommendation
Companies waste time and money on ineffective marketing strategies. Marketing research
professor Byron Sharp suggests that, instead, they should act according to research
that shows definite patterns or “laws” in how buyers buy and brands grow. He defies
conventional marketing theories as he explains why sellers should use mass marketing to
reach light buyers, and why loyalty programs and price promotions don’t work. According
to Sharp, marketing managers erroneously focus on serving existing customers rather
than on acquiring new ones. However, Sharp doesn’t mention Groupon, Living Social
and similar sites that redefine mass marketing every day. And, except for the occasional
quirky quote, the prose – while informative and applicable – is dense and dry. getAbstract
recommends his insights to marketing students, professors and researchers; to those
seeking to understand consumer behavior; and to data-oriented ad buyers or analysts.

Abstract
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Determining Brand Growth
String that jumps Most corporate marketers do not understand how buyers buy and how marketing works;
“Doing things that this information gap makes for inefficient and costly marketing. Research shows definite
no other brand has
been able to do, in
patterns in how consumers make purchasing decisions and how brands grow. How well
spite of considerable a brand sells depends on how many buyers it has and how often they buy.
investments
in customer In theory, a brand can be large, either because a few buyers purchase it frequently or
relationship
management because many people buy it occasionally. Consumer loyalty is stable across different-
(CRM) and sized brands. Large brands have higher penetration, but consumers buy most brands at an
other customer
satisfaction
equal rate of frequency (if you need a new box of detergent monthly, you buy it monthly,
initiatives, is seldom whatever the brand).
cheap or easy.”
String that jumps In a comparison of five United Kingdom laundry detergents based on market share,
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String that jumps penetration and purchase frequency, Persil had the highest market share and penetration,
String that jumps Surf had the lowest, and all other brands were in the middle. Purchase frequency was
String that jumps similar for all brands. Two brands with equal market share also have, in effect, equal
String that jumps
String that jumps market penetration, “a metric that records how many people bought the brand, at least
String that jumps once, in a particular time period.” This pattern invokes the “double jeopardy law”:
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Smaller brands are vulnerable to this hazard in that they have fewer buyers, who buy less
“It’s wrong to frequently, so they can lose both sales (which can affect all brands) and buyers (of whom
assume that a they have fewer from the outset).
brand appeals to a
particular type of
buyer; most don’t Building Your Customer Base
and they shouldn’t
Increasing penetration is the best way to expand a brand. You want more customers
want to.”
String that jumps who buy your products occasionally rather than fewer customers who buy frequently. To
String that jumps boost your customer base and market share, you can retain existing customers, recruit
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String that jumps new customers or do both. Most marketers believe retention is cheaper than acquisition.
String that jumps
“Marketing Defection rates, which measure customer loyalty, also follow the double jeopardy law.
offers the ability The number of customers who leave a brand depends on its category and market share.
to outperform Defection levels remain about the same among competing brands. Marketers have little
competitors while
they scratch their control over customer defection, which happens for a variety of reasons, from a family’s
heads wondering move to a change in its needs or budget.
why on earth you
are doing so well.”
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A survey measuring car-defection rates among 10,000 Americans who bought new
String that jumps cars from 1989 to 1991 found that two-thirds of customers switched brands. Between
String that jumps Pontiac, Dodge, Chevrolet, Buick, Ford, Toyota, Oldsmobile, Mercury and Honda, market
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penetration varied from 9% (Pontiac) to 4% (Honda), and defection rates varied from
String that jumps 58% (Pontiac) to 72% (Mercury). The average defection rate among all brands was 67%.
String that jumps Researchers found that the double jeopardy law had a noticeable impact, in that smaller
String that jumps
String that jumps brands had higher defection rates and, therefore, fewer loyal customers.
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“But marketing is
far from perfect;
Different Types of Customers
there is much Generally, marketers follow two strategies: mass marketing and target marketing. Mass
waste.” marketing attempts to reach all the buyers in a category, including the many occasional
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String that jumps or light buyers. Target marketing is directed at heavy purchasers or at a specific subset
String that jumps of purchasers. Today, marketers target certain buyers and try to increase customer
String that jumps loyalty. However, brand growth still requires mass marketing. Though they purchase
String that jumps
String that jumps only occasionally, light buyers contribute to brand growth by significantly increasing
String that jumps sales volume. Typical buyers are, in fact, light buyers. According to research regarding
String that jumps purchasing patterns in the UK, the average Coca-Cola buyer purchases Coke about 12
String that jumps
String that jumps times a year. Light buyers dominate the market, even for established brands such as Coke.
“Buyers are busier
than ever, and many Marketing professionals often forget light buyers because they are harder to attract than
brands are vying for
their attention and heavy buyers. Since heavy buyers purchase a brand more often, they are more aware of its
custom. Forming advertising efforts, changes in packaging, sales promotions, and so on. Even so, infrequent
deep relationships light buyers represent the typical consumer across all categories and brands. Marketing’s
with a substantial
number of buyers most important law, the “Pareto law” or the “80/20” rule, states that 80% of sales come
seems more unlikely from the top 20% of brand buyers. Marketers often use Pareto’s law to justify targeted
than ever.” strategies that focus on heavy buyers, while disregarding the fact that ignoring light buyers
String that jumps
String that jumps inhibits brand growth. “Put simply, next period your heaviest 20% of customers won’t be
String that jumps so heavy, the light buyers will be heavier and some of the non-buyers will buy. This is
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the law of buyer moderation.”
String that jumps
String that jumps
String that jumps Light buyers and those who don’t buy a brand at all may become heavy buyers, while
String that jumps heavy buyers may become light buyers. Marketers can predict the impact of this “law
String that jumps
String that jumps of buyer moderation” – which applies to all brands – based on buyer frequency. Success
“If 80% of your requires reaching all purchasers and potential purchasers. That reaches heavy buyers by
buyers delivered default, because heavy buyers already know about and purchase the brand.
only 20% of your
annual sales, it
would be tempting Competing Brands, Same Consumers
to ignore them. But
if these light buyers Loyalty does not vary much among brands. Competing brands attract the same customer
deliver around half base. Although each brand’s customer base varies, each brand’s base also undergoes
your sales, do you similar variations. Shoppers have opinions about the brands they buy, but they don’t
still want to ignore
them?” think about the brands they don’t buy. Their attitudes reflect their loyalty or how heavily
String that jumps they purchase a brand. Brand managers add variants to their brands to reach different
String that jumps consumers, but their base stays the same.
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String that jumps Because similar brands have similar customer bases, you can target your competitors’
String that jumps
String that jumps brands, and your competitors can target yours. You each draw the same people – for
String that jumps instance, all soda drinkers. Surveys show that Coca-Cola drinkers in the UK also purchase
“If brands grow Diet Coke (65%), Fanta (70%), Lilt (67%) and Pepsi (72%). Each of these brands shares
they will always
steal from the other an almost identical proportion of its customer base with Coca-Cola, so none of them target
brands in the same a specific segment of soft-drink buyers. This buying pattern reflects the “duplication of
product category.” purchase law,” which states “all brands, within a category, share their customer base with
String that jumps
String that jumps other brands in line with the size of those other brands.” Close rivals share the same
String that jumps buyers. Brands that compete directly in a product category show higher levels of shared
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buyers. Brands that target different product categories share fewer buyers.
String that jumps
String that jumps
String that jumps Brand Instability
String that jumps
String that jumps Most companies strive for brand loyalty and urge consumers to keep purchasing their
String that jumps products. But hundreds of brands compete for the attention of busy consumers. Most
String that jumps people feel “divided loyalty” and purchase several different brands; customers are rarely
“Advertising works
by reaching and 100% loyal to any one brand. Following the double jeopardy law, smaller brands
nudging. This have fewer customers who are 100% loyal. Marketers talk about “creating value” and
mostly happens
without us noticing.”
“building relationships” but consumers just continue to purchase brands based on habit
String that jumps and availability. In one set of surveys, shoppers rated how they felt about a particular
String that jumps brand, including why they bought it. Then, in subsequent surveys, the same shoppers
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changed their answers. This brand instability applies to all brands across all sectors.
String that jumps
String that jumps Some brands, such as Harley-Davidson and Apple, claim to have passionate, loyal
String that jumps customers. But these brands produce scant evidence to back up their claims. Apple buyers
String that jumps
String that jumps do exhibit slightly higher loyalty than other computer owners, but they are not 100% loyal.
String that jumps In one survey, Apple buyers made repeat purchases 55% of the time, compared with 71%
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“Loyalty metrics
for Dell and 52% for both HP/Compaq and Gateway. Meanwhile, Harley’s famously loyal
don’t vary a lot customer base – those who spend the most money on Harley accessories for their bikes –
between brands. represents only 3.5% of Harley-Davidson’s total sales revenue. The largest segment of US
Buyers of brand
A have the same
Harley-Davidson riders (40% of owners) said their motorcycles were “just parked most
opinion of brand A of the time” and they “didn’t know” many other bike riders. This group was also least
as buyers of brand B likely to report, “My bike is everything to me.”
have of brand B.”
String that jumps
String that jumps Differentiation Versus Distinctiveness
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Most marketing textbooks promote the maxim: “Differentiate or die.” These texts
String that jumps maintain that making your product different from the competition’s offering gets your
String that jumps merchandise noticed and purchased. However, studies show that consumers do not value
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brand differentiation and rarely think about the brand they purchase. In a 2007 study,
String that jumps consumers examined images of 130 brands across 13 product and service categories. They
String that jumps associated a particular brand with a particular image only 3% of the time. Usually, buyers
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“It isn’t essential perceive only slight differentiation among brands.
for marketers to
convince buyers Brands must be unique and prevalent to remain distinctive, so they take advantage of
that a product is
different before
anything that makes them stand out from their rivals. To encourage loyalty, brands use
they buy it. This celebrity endorsements, signature colors and logos, ad taglines and styles, symbols, and
should take characters. A brand’s identity must be consistent, so customers can recognize it. In the
considerable weight
off marketers’
1970s, Nike introduced its “swoosh” accompanying the brand name before gradually
shoulders.” using it as a stand-alone symbol.
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String that jumps Advertising, Price Promotions and Loyalty Programs
String that jumps
“If growth were Even established brands need to advertise, though sales rarely rise when advertising starts
that easy then all and don’t slow when it stops. Effective advertising creates memories. For example, Coca-
marketing directors Cola’s messages remind buyers, “Coke is fun, we’ve had it before and we like it.” If
would be out of
a job or paid a Coke’s ads work, they increase the probability that you’ll buy a Coke from one in 300
pittance of their to two in 300, an almost unnoticeable shift in behavior. Successful advertising causes
current salary. No consumers to notice a brand, and reinforces their memories of it when they are shopping.
one can guarantee
growth.” Advertising works by persuasion and salience, that is building and refreshing memories.
String that jumps
String that jumps Price is important, but it’s not all. Consumers buy items in a range of price levels: basic,
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medium and high-end. Price promotions – when managers discount their prices to gain
String that jumps new customers – are more likely to attract light buyers, who take advantage of a low-price
String that jumps sale, and then resume their normal infrequent purchasing patterns after the price goes back
String that jumps
String that jumps to normal. Some marketing managers fear buyers will be reluctant to pay full price for
String that jumps products after paying a discounted price and that fear is justified. Most consumers have an
String that jumps internal “reference price,” which is what they believe a product should cost. The reference
“Rather than
striving for price derives from their previous exposure to that product. Temporary price cuts may not
meaningful, have negative aftereffects, but routinely discounting prices will indeed lower people’s
perceived “references prices” and make them less inclined to pay the normal price.
differentiation,
marketers should
seek meaningless Marketers like price promotions because they boost short-term sales. On average, a 10%
distinctiveness.” price cut will increase sales volume by approximately 25%. To institute a price reduction
String that jumps
String that jumps that will increase sales, merchandisers should consider three factors: the “contribution
String that jumps margin” of the brand’s normal price, the brand’s “price elasticity” and the depth of the
String that jumps price cut. The contribution margin is the selling price minus variable costs, i.e., the amount
String that jumps
String that jumps “left over” to cover fixed costs. Low contribution margins require a large increase in sales
String that jumps to break even. High contribution margins will earn more profit, even with modest sales.
String that jumps
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Loyalty programs encourage frequent purchases. Most loyalty programs use a points
String that jumps system in which each purchase earns points that consumers can redeem for rewards.
“Memory is the link Loyalty programs don’t increase sales because they target loyal, heavy buyers who already
between an ad and
brand choice.” buy the product or service. Heavy buyers join loyalty programs because that rewards their
String that jumps current behavior, but light buyers have no economic incentive to join. Loyalty programs
String that jumps are difficult to eliminate because members get angry when their benefits change and may
String that jumps
String that jumps turn away from the brand. Because loyalty programs don’t boost buying behavior, they
String that jumps do not contribute to brand growth.
String that jumps
String that jumps
String that jumps Mental and Physical Availability
String that jumps Brands must have mental and physical availability. Mental availability or “brand salience”
String that jumps
String that jumps means people notice the brand. Once they are aware of a brand, buyers will purchase it
“Branding lasts, later if they remember it. Physical availability, which includes both hours of availability
differentiation and physical location, means the brand is easy to buy. While mental and physical
doesn’t.”
availability take a long time to build, they also take a long time to erode. Marketing works
best when the brand is available and easy to notice.

About the Author


Byron Sharp is a professor and director at the University of South Australia’s Ehrenberg-
Bass Institute, which specializes in marketing research.

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